The Reserve Bank of India’s recent rate cuts in 2025 have brought fresh relief to borrowers — but they’ve also revived a common question:
Should you choose RLLR or MCLR for your home loan?
Both are interest rate benchmarks used by banks to calculate your home loan EMIs, but they behave very differently when RBI policy rates change.
Let’s break it down and see which option can save you more in the current environment.
1. What Is RLLR (Repo Linked Lending Rate)?
The RLLR is directly linked to the RBI’s repo rate — the rate at which the RBI lends money to banks.
Whenever the RBI changes the repo rate, your RLLR-linked loan rate automatically adjusts — usually within three months.
Formula:
RLLR = RBI Repo Rate + Bank’s Spread + Risk Premium
Key Features:
Transparent and market-linked
Faster transmission of rate changes
More suitable when RBI is cutting rates
2. What Is MCLR (Marginal Cost of Funds-Based Lending Rate)?
The MCLR is an older benchmark system introduced in 2016. It’s based on the bank’s internal cost of funds — such as deposit rates, operating expenses, and risk factors.
Changes in the RBI’s repo rate don’t immediately affect MCLR-linked loans. Instead, banks review MCLR every 6 or 12 months, which can delay the impact of rate cuts.
Formula:
MCLR = Bank’s Cost of Funds + Operating Costs + Tenure Premium
Key Features:
Less volatile than RLLR
Slower rate transmission
May benefit borrowers when rates rise
3. The Impact of RBI’s 2025 Rate Cuts
In 2025, the RBI cut the repo rate by 0.50%, aiming to boost housing demand and economic growth.
Here’s how that plays out for borrowers:
RLLR loans: Rates adjust almost immediately, leading to lower EMIs or shorter loan tenure.
MCLR loans: Reduction happens gradually, often after the next reset date — sometimes a delay of up to 6 months.
So if you’re on an RLLR-linked loan, you likely saw the benefit of lower EMIs faster than MCLR borrowers.
4. RLLR vs MCLR: Side-by-Side Comparison
| Criteria | RLLR | MCLR |
|---|---|---|
| Linked To | RBI Repo Rate | Bank’s Cost of Funds |
| Rate Change Speed | Immediate (1–3 months) | Delayed (6–12 months) |
| Transparency | High | Moderate |
| Best When | RBI is cutting rates | RBI is hiking rates |
| Risk of EMI Fluctuation | High | Low |
| Popularity (2025) | Rising fast | Gradually declining |
5. Which One Should You Choose in 2025?
Given the RBI’s easing cycle, RLLR is the clear winner for most homebuyers in 2025.
You’ll enjoy:
Faster rate pass-throughs
Lower EMIs when repo rates fall
Transparent linkage to policy changes
However, if you prefer stability and want to avoid frequent EMI changes, an MCLR loan might still suit you better — especially if you expect rates to rise again soon.
6. Tips Before Choosing Between RLLR and MCLR
✅ Check your bank’s spread and margin — it varies widely.
✅ Consider your loan tenure — longer loans benefit more from rate cuts.
✅ Review the reset frequency and conversion fees if you switch from MCLR to RLLR.
✅ Keep an eye on future RBI announcements to anticipate trends.
Conclusion
The RBI’s 2025 rate cuts have tilted the balance in favor of RLLR-linked home loans. They offer transparency, quicker benefits, and more alignment with the economy’s movement.
That said, the “best” choice depends on your comfort with rate volatility and your long-term financial goals.
In short — RLLR is better for savings, while MCLR is safer for stability.
FAQs
Q1: Can I switch from MCLR to RLLR?
Yes, most banks allow conversion, but they may charge a small administrative fee.
Q2: Do RLLR rates always decrease when RBI cuts repo rates?
Generally yes, but the final rate depends on your bank’s spread and risk premium.
Q3: Which loan type offers more stability?
MCLR offers more stable EMIs, as rates don’t change as frequently as RLLR.
Q4: Is RLLR mandatory for new borrowers?
Most new home loans after October 2019 are offered under RLLR, as per RBI guidelines.
Published on : 31st October
Published by : SMITA
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